U.S. Inflation Still High Despite August Slowdown

Lower gas costs slowed US inflation for a second straight month in August, but most other prices across the economy kept rising — evidence that inflation remains a heavy burden for American households, Christopher Rugaber reported for the Associated Press (AP).

Photo Insert: Further Fed rate hikes could weaken growth so much as to push the economy into a recession.

Consumer prices surged 8.3% last month compared with a year earlier, the government said Tuesday, down from an 8.5% jump in July and a four-decade high of 9.1% in June. On a monthly basis, prices rose 0.1%, after a flat reading in July.

But excluding the volatile food and energy categories, so-called core prices jumped 0.6% from July to August — up sharply from 0.3% the previous month and dashing hopes, for now, that core prices would moderate.

And in the year ending in August, core prices jumped 6.3%, up from 5.9% in July. Rents, medical care services, and new cars all grew more expensive last month.

Core prices typically provide a clearer read on where costs are headed than overall inflation. Stock prices tumbled and bond yields jumped on the worse-than-expected core figures, with many investors fearful that the Federal Reserve will turn even more aggressive in its drive to curb inflation.

Further Fed rate hikes could weaken growth so much as to push the economy into a recession. Some economists now expect the Fed to raise its benchmark short-term rate, currently in a range of 2.25% to 2.5%, to 4.5% or higher.

That would make it even harder for the central bank to meet its goal of achieving a “soft landing, whereby it tames inflation without causing a recession.

“This was a disappointing report,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “It raises the risk of higher interest rates and a hard landing for the economy.”

Chairman Jerome Powell is expected to announce another big increase in the Fed’s key rate next week, which will lead to higher costs for many consumer and business loans.

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